America's watchdog can bite
Sunday 25 May 1997
At full strength the SEC has five commissioners appointed by the President, with the consent of the US Senate, for five-year terms. The chairman is also appointed by the President.
There are five principal SEC divisions. The enforcement division investigates possible violations of securities laws and recommends action. The corporate finance division ensures that disclosure requirements are met by publicly held companies. The market regulation division oversees the securities markets and brokerage firms, and regulates trading and sales practices. The investment management division oversees investment company and adviser sales practices and financial responsibility. The office of compliance inspections and examinations inspects all stock markets, brokers, and investment companies and advisers.
In the last two years the SEC has taken several major administrative actions and worked closely with Congress to bring about significant changes in US securities laws.
In August the SEC censured the National Association of Securities Dealers, an industry body that runs the Nasdaq stock market and polices all US brokers. The SEC charged the NASD with turning a blind eye to dealer trading violations on Nasdaq. The NASD agreed to settle these charges by spending an extra $100m (pounds 60m) on enforcement in the next five years.
In January 1996, the SEC filed its first-ever suit against a city or county for municipal bond violations when it charged Orange County, California, with disclosure fraud in connection with its $1.7bn bankruptcy. The county, in settling these charges, agreed to be subject to stiffer sanctions if it commits similar violations again.
In March 1996, a broad SEC examination of small and mid- sized brokerages found serious deficiencies in sales practices, hiring and supervision at more than 100 firms. The SEC can impose fines and work prohibitions against accountants, brokers and corporate officers.
The commission can also refer cases to the Justice Department for criminal prosecution, which can lead to prison terms. The SEC initiated 453 enforcement actions last year, imposed $67m in fines and ordered restitution totalling $325m.
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